While Africa was largely spared in the early days of the coronavirus outbreak, an inevitable spread of the virus has placed overwhelming pressure on the continent’s vulnerable public health systems, with the number of cases in Africa surpassing 35,000. Consequently, the ensuing lockdown and economic stagnation have left African states bracing for a devastating economic impact that will likely lead to the continent’s first recession in 25 years.
Last month, the International Monetary Fund (IMF) projected that Africa’s economic growth will shrink by an unprecedented 1.6% in 2020 amid tighter financial conditions, a sharp decline in key export prices, and severe disruptions to economic activities. Many African countries depend on commodities for export earnings. Many of those countries, including oil exporters such as Angola, spend a substantial chunk of their budgets towards servicing debt, to the detriment of the healthcare and education sectors. Amid the ongoing pandemic, dwindling remittances, an imploding tourism sector, and plummeting commodity prices, with the exception of coffee, have only compounded their existing financial struggles.
In the light of these developments, African countries have urged international organisations such as IMF, World Bank and European Union to support its calls for a moratorium on all external debt and some debt write-offs in order to ease the burden of dealing with the coronavirus crisis. Africa's finance ministers called for a $100 billion stimulus package, of which $44 billion would come from a freeze on servicing debt, while suggesting that an additional $50 billion may be needed in 2021. According to South African President Cyril Ramaphosa, African nations will require at least a two-year debt standstill to provide governments with the fiscal space to fight the coronavirus pandemic.
The EU has responded by planning a pledging conference in May, where member-states will simultaneously announce a large number of new funds and programmes for debt restructuring. Meanwhile, the IMF has cancelled six months worth of debt payments, or $500 million, for 25 countries, 19 of them in Africa. China, on the other hand, which is the region’s top trading partner and its top lender, has maintained strategic silence. Beijing, which has become increasingly influential in the African continent over the last decade, has been noncommittal beyond its support for a G-20-led moratorium that frees up to $20 billion in debt payments through 2020 for low-income countries.
When asked how it would treat loans to African countries, China’s embassy in Nairobi referred to a statement on April 16 by foreign ministry spokesman Zhao Lijian. “China will, in accordance with the consensus of the G20 on debt relief, help the poorest countries concentrate their efforts on fighting the epidemic and supporting economic and social development,” he said in the statement.
Much of Chinese loans come from the China Development Bank and the Export-Import Bank of China, both of which are “closely linked” to the Chinese government. Therefore, any negotiations on debt relief with these banks amounts to a negotiation with the Chinese government.
China has loaned Africa close to $160 billion, most of which has gone towards infrastructure projects. However, critics argue that most of that money is lent as commercial loans with hefty interest rates that some countries can't afford even in normal circumstances. The Jubilee Debt Campaign–a coalition of organizations in the United Kingdom dedicated to providing debt relief for developing countries–estimates that, as of 2018, around 20% of all African government debt is owed to China. Therefore, considering the sheer magnitude of debt owed to China, proposals for debt relief without China’s acquiescence do not provide meaningful or significant relief to African countries.
China’s predatory lending and its reluctance to provide debt relief in the face of unprecedented and overwhelming economic difficulties are compounded by recent reports of racism against African nationals in China. Together, these events have eroded some of the goodwill China had generated in the continent. Its “debt-trap diplomacy” has engendered anguish among African states, while its reluctance to accept accusations of racism has fostered anger among African leaders. Sensing this disharmony, the US has doubled its efforts to increase diplomatic and economic engagements with Africa by projecting itself as the antithesis to China.
Last week, US Secretary of State Mike Pompeo said that the US and G-20 countries are evaluating how, when and whether to forgive or suspend African debt. He also called on China to consider debt relief. In addition, Pompeo also spoke of Washington’s bid to help Africa’s fight against Covid-19, including a project to develop a vaccine, but added that some of the challenges the continent may face will require debt adjustment. “We are constantly evaluating both the how and the when,” Pompeo said, referring to whether the debt in Africa should be forgiven or suspended. He added, “I would also remind everyone that there is an enormous amount of debt that China has imposed on African countries. It is something that the African countries should consider, too, in asking China to possibly enter debt relief on some deals that have incredibly onerous terms that will impact the African people for an awfully long time, if relief is not granted.”
When accused of preying on burgeoning anti-China sentiment in Africa, Pompeo reiterated that Washington has spent roughly $60 billion on public health in the continent over the past two decades. “This is unrivalled. It has saved a lot of lives, more than 17 million, thanks to Pepfar alone,” Pompeo said, referring to the Bush-era programme to fight HIV/Aids that remains operational even today. “We trained 265,000 healthcare workers as part of that as well. I think that's point number one. We are working with you to save lives every day.”
During the ongoing crisis, America has announced an aid package of $170 million towards refurbishing hospitals and training medics in Ghana, Nigeria, Senegal, Uganda, Sierra Leone, Mauritania, and Ethiopia.
Despite the fact that US exports into Africa have decreased by 32% from their high in 2014, the US government has begun providing additional incentives for American businesses to invest in Africa. For example, the 2018 BUILD (Better Utilizing Investments to Leverage Development) Act, which created the International Development Finance Corporation (DFC), resumed operations in January this year after Congress approved funding, with an investment cap of $60bn. In addition, President Donald Trump’s ‘Prosper Africa’ initiative seeks to bring the work of more than 15 US government agencies that work on African trade, finance and policy under one umbrella.
Furthermore, the US Congress allowed the US Export-Import Bank (Exim Bank) to restart its operations in 2019. And according to Exim bank’s president Kimberly Reed, one of the reasons why large LNG projects in Mozambique turned to Russian and Chinese financing was due to the closure of Exim Bank and emphasises that, with its reopening, “they turned to us instead. In fact, the bank has gathered $40bn in applications since restarting its operations. At the US-Africa Leadership Forum, US commerce secretary Wilbur Ross pointed out that “many small and medium-sized African companies are unaware of the US government’s export, investment and risk-mitigation tools” and strongly hinted at the less risky nature of American lending practices compared to China.
American motives behind positioning itself as an alternative to China aren’t entirely altruistic. Rather, Washington’s policies are guided by the goal of countering the growing stature and influence of Beijing in Africa, which represents a crucial, emerging market. While national security adviser John Bolton has lambasted China for its “bribes, opaque agreements, and [its] strategic use of debt to hold states in Africa captive”, US policy objectives are not devoid of their own geopolitical agenda.
Demand for Chinese-backed capital to build everything from highways to hydroelectric damns has led to a situation wherein China holds about a third of Africa’s sovereign debt, This debt entrapment has severely undermined African countries’ sovereignty. However, this the growing ill-will towards China will not entirely prevent African countries from borrowing money from China. In fact, Chinese banks are already preparing for a growing pile of bad loans to capitalize on highly vulnerable countries and businesses. Earlier this year, China’s central bank said state lenders will have to tolerate higher levels of bad loans to support firms affected by the coronavirus, meaning they will be willing to incur losses due to non-payments.
That being said, Beijing could be motivated to write off debts due to the significance of the Belt and Road Initiative (BRI) to China. The BRI, China’s mammoth infrastructure investment plan, is highly controversial and widely criticized for saddling many countries with debt. It is an ambitious project that aims to build a facilitate trade through a complex network of rail, road and sea routes stretching from China to Central Asia, Africa, and Europe. Chinese financial institutions have provided hundreds of billions in funding to countries involved in the BRI projects. Given the strategic significance of the BRI to China and the amount of time and money it has already invested, it is likely that it will eventually come around to the idea of rescheduling and forgiving some of the debts to BRI countries.
Moreover, even in the past, China has mostly cancelled interest-free loans that had reached maturity, especially interest-free loans that directly overseen by the central government. In 2017, it cancelled US$160 million owed by Sudan. In 2018, China cancelled US$78 million owed by Cameroon, US$7.2 million owed by Botswana, and US$10.6 million owed by Lesotho. Last year, it restructured debt owed by Congo-Brazzaville, helping the country unlock US$449 million in additional loans from the IMF.
Therefore, the United States seeks to capitalize on simmering anti-China sentiment among debt-riddled and fragile African states. However, positioning itself as a benevolent alternative to an unscrupulous, ruthless regime that holds vulnerable nations captive somewhat distorts reality. While the United States doubles down on its accusations against the Chinese government and French President Emmanuel Macron calls on China to provide debt relief for African countries, this ignores the fact that China has provided such relief in the past, even though it appears reluctant to do so at the moment. Nevertheless, as the discourse around debt cancellations changes and as it becomes equated with moral duty during these especially trying times, China’s hand could be forced into rare acts of charity, especially at a time when it has come under fire for its aggressive “wolf-warrior” diplomacy and its handling of the coronavirus crisis.
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